In international business, transparency is now the need of the hour as the tax landscape goes through multiple changes. The equitable and unprejudiced payment of taxes on the part of multinationals in countries they operate and operated in is constantly under the vigilance of the media, NGOs and lobby groups. In this scenario, mandatory legislation for a Country by Country reporting of financial and tax data is being implemented and encouraged.
Country-by-Country (CbC) is a report that has been mandated under Base Erosion and Profit Shifting (BEPS) Action Plan 13 wherein every multinational is provided a template to report their annual numbers and tax liabilities. Most times, this allows the companies an avenue to draw up careful strategies to move profits from higher–tax jurisdictions to lower–tax jurisdictions. The CbC report, breaks down key elements of the financial statements to be submitted by multinationals, by jurisdiction. MNE Groups are to provide the global allocation of their income, taxes and other locational indicators of economic activity. This unique information on MNE Groups’ operations across the world they believe, will improve tax authorities’ risk-assessment capabilities.
OECD member jurisdictions that are part of the Inclusive Framework on BEPS have made significant strides to ensure that a standardized mechanism is in place for facilitating automatic exchange of CbC reports and that local filing happens only where it is required and mandated.
This article gives a summary of the update in reporting obligation that faces over 75 jurisdictions. Action 13 Min. Standard has been translated into precise terms of reference and a methodology for the review process has been set.
Exchanging CbC reports with international assistance efforts are being made for exchanging CbC reports for a well over 2000 relationships. These include relationships:
Which are signing authorities to the agreement relating to the Country by Country multilateral proficient authority. There are as much as 77 such jurisdictions.
Among the 28 EU Member States under European Council Directive 2016/881/EU who have mutual qualifying competent agreements, not limited to such mutual provisions between the United States and around 35 jurisdictions.
Measures taken to minimize local filing by entities filing of a CbC report by a resident entity is mandatory as far as a jurisdiction is concerned. However, it may not be the eventual parent entity of its group. There is no necessity for an authority to apply for local filing. However, if it chooses to do so, it needs to be done only under the following three specific circumstances:
Filing a CbC report by the parent entity of an MNE group is not required.
The residence control of the parent entity has an existing international agreement with the residence constituent entity. However, there is no proficient authority agreement between these two jurisdictions. Exceptions are those circumstances where there are no such international agreements.
There is a failure to exchange CbC Reports by the residence jurisdiction of the ultimate parent entity.
Even if one of the above three situations are present, the local filing would not be permitted.
There is still a growth in the global scenario for CbC Reporting by MNE groups. The initial gestation period may be difficult for both tax administrators and MNE groups to navigate in harmony. Under such circumstances, they may even call for a mutually acceptable approach that accounts for the greatest efforts made to align with CbC related compliance. These challenges, should show a downward trend over time, while the global platform for CbC Reporting gets settled with both the tax administrators and MNE groups attain maturity with experience.